Accrual vs Cash Basis Accounting

Most companies use this type of accounting, which recognizes revenues and expenses regardless of when the exchange of cash occurs. Book revenues when an event takes place that will produce income. Book an expense when you contract to pay for something, regardless of when you actually receive it.

For a business creating an invoice for an item sold or work performed, the corresponding amount will appear in the books even though no payment has yet been received. Similarly, debts owed by the business show as they are incurred, even though they may not be paid until later.

This is the simplest accounting method. Revenue is recorded when cash is received for goods or services, and expenses are recorded when cash is paid for the goods or services.

For a business creating an invoice for an item sold or work performed, the corresponding amount will not appear in the books until payment is received. Similarly, debts owed by the business will not appear until they have been paid.